Tax Incentives for Charitable Activities in Russia: A Comprehensive Legal Overview

 

July 31, 2025

BRACE Law Firm ©

 

A modern state cannot resolve all social problems of its citizens on its own. This requires the active participation of all members of society, from large businesses to concerned citizens. According to the Ministry of Economic Development of the Russian Federation, the number of charitable companies in Russia is steadily growing, and the amount of donations in 2024 exceeds 100 billion rubles. [1]

Charitable activity must certainly find support from the state, including through the provision of tax incentives to benefactors.

In this article, we consider the specific taxation features established for charitable organizations, as well as the tax incentives that other companies and individuals participating in charity may utilize.

What Constitutes Charitable Activity?

Before considering this topic, let us analyze what Russian legislation understands by charitable activity and who its participants are.

Pursuant to Article 1 of Federal Law No. 135-FZ dated August 11, 1995, On Charitable Activity and Volunteering (the "Law on Charity"), charitable activity means voluntary activity by citizens and legal entities involving the disinterested (free of charge or on preferential terms) transfer of property to citizens or legal entities, including funds, the disinterested performance of work, the provision of services, or the rendering of other support.

Thus, the main features distinguishing charitable activity from any other are its voluntariness and disinterestedness. In the sense of the law, disinterestedness includes not only the free provision of property, work, and services, but also their provision on preferential terms.

Furthermore, for an activity to be charitable, it must correspond to the purposes of implementation listed in Article 2 of the Law on Charity. In particular, it may be carried out for the purposes of:

• social support and protection of citizens, including improving the financial situation of the underprivileged, social rehabilitation of the unemployed, the disabled, and other persons who, due to their physical or intellectual characteristics, are unable to independently exercise their rights and legitimate interests;
• preparing the population to overcome the consequences of natural disasters, environmental, industrial, or other catastrophes, and to prevent accidents;
• participating in the liquidation of emergency situations and their consequences, the prevention and extinguishing of fires, and the performance of emergency rescue operations;
• rendering assistance to victims of natural disasters and other catastrophes, social, ethnic, or religious conflicts, victims of repression, refugees, and displaced persons;
• preventing social, ethnic, and religious conflicts;
• promoting the protection of motherhood, childhood, and fatherhood;
• promoting activities in the fields of education, science, culture, art, enlightenment, and the spiritual development of the individual;
• promoting activities in the field of prevention and protection of public health, as well as the promotion of a healthy lifestyle;
• promoting activities in the field of physical culture and sports;
• environmental protection and animal protection;
• the protection and maintenance of buildings, objects, and territories of historical, religious, cultural, or environmental significance, and burial sites;
• the social rehabilitation of orphans, children left without parental care, neglected children, and children in difficult life situations;
• the provision of free legal aid and the legal enlightenment of the population;
• promoting volunteer activities;
• participating in activities to prevent neglect and juvenile delinquency;
• promoting the development of scientific, technical, and artistic creativity of children and youth;
• promoting the patriotic, spiritual, and moral upbringing of children and youth;
• supporting socially significant youth initiatives, projects, children's and youth movements, and children's and youth organizations;
• promoting activities for the production and (or) distribution of social advertising;
• promoting the prevention of socially dangerous forms of behavior among citizens;
• perpetuating the memory of those who died while defending the Fatherland;
• providing support to compatriots living abroad.

At the same time, providing assistance to commercial organizations or supporting political parties, movements, groups, and campaigns does not constitute charity.

Persons who make charitable donations are called "benefactors", while those receiving donations are called "beneficiaries". Benefactors may include citizens, legal entities, or associations of citizens and (or) legal entities. Furthermore, no one may restrict the choice of the form for implementing charitable activity.

An organization whose primary type of activity is charitable activity is called a "charitable organization". A charitable organization is a non-governmental (non-state and non-municipal) non-profit organization created to implement the purposes provided for by law by carrying out charitable activities in the interests of society as a whole or individual categories of persons (Article 6 of the Law on Charity). They may be created in the form of public organizations, socially useful funds, or institutions (if the founder is another charitable organization).

As with any legal entity, a charitable organization must maintain accounting and tax records in accordance with the requirements of current legislation. Tax authorities exercise control over the income sources of charitable organizations, the amounts of funds they receive, and the payment of taxes. Below, we consider the taxation procedure for these organizations.

What Taxes Do Charitable Organizations Pay?

Charitable organizations pay the same taxes as other non-profit organizations. Depending on the applied tax system (the general system or the simplified tax system), they may be payers of the following taxes:

• corporate income tax or the tax under the STS;
• VAT;
• PIT;
• property tax, transport tax, and land tax.

However, the Tax Code of the Russian Federation (the "Tax Code") establishes certain taxation features for charitable organizations. We examine them in more detail below.

Corporate Income Tax for Charitable Activities

Pursuant to Paragraph 2 of Article 251 of the Tax Code, when forming the tax base for corporate income tax, non-profit organizations do not take into account targeted proceeds received for the implementation of statutory non-profit activities. Such proceeds include, in particular, funds and other property or property rights received for the implementation of charitable activities.

Thus, funds and property received by a charitable organization for the implementation of charitable activity are not subject to corporate income tax. However, the following conditions must be met for this:

• they must be used for their intended purpose;
• separate accounting of these funds is maintained.

As the Ministry of Finance of Russia indicates, [2] when deciding on the targeted nature of the use of funds, one must focus on the purposes of charitable activity specified in the Law on Charity. Funds directed toward events that do not correspond to the specified purposes are recognized as non-operating income and are subject to taxation in the generally established procedure.

Funds received as a result of a charitable organization's performance of entrepreneurial activities are also subject to corporate income tax in the general procedure.

For instance, in Case No. A60-28720/2021, [3] the tax inspectorate conducted a field tax audit of a Union, resulting in an assessment of corporate income tax in the amount of 3,024,498 rubles, penalties in the amount of 9,469,632 rubles, and a fine of 341,871 rubles. The basis was the identification of facts where fees for obtaining permits for hunting animals were paid under the guise of voluntary donations. These donations, in the opinion of the tax authority, constitute income of the Union from the provision of paid services and are subject to taxation in the established procedure. Disagreeing with the decision of the control authority, the organization appealed to the court. In support of its position, it pointed out that donations by members of the Union are made voluntarily, the amount is not specified, and the donations are used for forest protection. The court established that when applying for a hunting permit, a member of the Union simultaneously pays a donation for forest protection to the accounting department. The court concluded that the contributions made by the members of the Union are actually payment for a hunting voucher. The decision of the tax authority was recognized as legal and grounded.

Judicial practice also includes cases of challenging donations within the framework of bankruptcy proceedings. The Supreme Court of the Russian Federation formed a position,[4] according to which a donation, as a unilateral transaction, may be verified for compliance with the requirements of bankruptcy legislation. In this regard, to recognize a transaction as invalid, it must be established that:

• the transaction was committed for the purpose of causing harm to the property rights of creditors and such harm was caused;
• the other party to the transaction knew or should have been aware of this purpose at the time the transaction was committed. At the same time, a presumption of the counterparty's awareness of the commitment of the transaction for the purpose of causing harm is established.

However, in the case considered by the Supreme Court of the Russian Federation, it was recognized that in normal civil circulation, the law does not impose an obligation on charitable organizations to verify the financial position of a benefactor.

Thus, as a general rule, funds and other property received for the implementation of charitable activity are not subject to corporate income tax provided that the charitable organization complies with the targeted expenditure and maintains separate accounting.

The STS for Charitable Activities

Similar tax regulation applies if a charitable organization uses the simplified tax system.

According to Subparagraph 1 of Paragraph 1.1 of Article 346.15 of the Tax Code, funds and property received for the implementation of charitable activity are not included in the tax base for the STS. The conditions for using donations strictly for their intended purpose and maintaining their separate accounting must also be met.

VAT for Charitable Activities

Tax legislation provides a very significant incentive regarding the payment of VAT for charitable organizations. Pursuant to Subparagraph 12 of Paragraph 3 of Article 149 of the Tax Code, the transfer of property, property rights, work, and services free of charge within the framework of charitable activity is not subject to value added tax, with the exception of excisable goods.

However, these actions must be documented. Documents confirming the right to exemption from taxation are recognized as:

• a contract or agreement on the free transfer of goods (work, services) or property rights by the taxpayer;
• an act of acceptance and transfer of goods (work, services) or property rights, or another document confirming the transfer by the taxpayer of goods or property rights (the performance of work, the provision of services).

PIT for Charitable Activities

The exemption from withholding PIT depends on the category of recipients. Pursuant to Paragraph 8.2 of Article 217 of the Tax Code, PIT is not withheld when a charitable organization provides charitable assistance to a physical person. The taxation of payments to employees of a charitable organization for the performance of labor activities is carried out in the general procedure.

Thus, charitable organizations are exempt from corporate income tax/STS and value added tax regarding funds, property, and property rights provided for the implementation of charitable activity. As for other taxes, they are generally paid on an equal basis with other legal entities. Furthermore, to utilize these incentives, charitable organizations must maintain separate accounting and ensure strict control over the targeted expenditure of these funds.

Tax Incentives for Other Benefactors

In addition to charitable organizations, any legal entities and physical persons may provide charitable assistance. We consider the tax incentives provided to them by the state.

1. Corporate Income Tax.

Pursuant to Paragraph 1 of Article 265 of the Tax Code, for the purposes of corporate income tax, the following may be taken into account as non-operating expenses:

• expenses for the creation of social, engineering, utility, and transport infrastructure objects transferred free of charge into state or municipal ownership;
• expenses in the form of the value of property (including funds) intended for the prevention, diagnosis, and treatment of a new coronavirus infection, transferred free of charge to medical organizations that are non-profit organizations, state authorities or local government bodies, state and municipal institutions, or state and municipal unitary enterprises;
• expenses in the form of the value of property (including funds) transferred free of charge to centralized religious organizations and non-profit organizations included in the register of socially oriented non-profit organizations (the "SO NPOs"). The specified register of SO NPOs is posted on the website of the Ministry of Economic Development of Russia and currently includes 49,725 organizations.

Other expenses incurred by an organization as charitable assistance do not reduce the tax base for corporate income tax and are carried out from the company's net profit. We note that the Ministry of Finance of Russia [5] indicates the possibility of taking into account expenses for charitable assistance to citizens called up within the framework of mobilization for corporate income tax purposes. However, such charitable assistance must be provided through non-profit organizations included in the register of SO NPOs, which essentially does not expand the list of grounds and limits the circle of beneficiaries. The authority expressed a similar opinion [6] regarding organizations providing charitable assistance to sports organizations, children's sections, and clubs.

The amount of recognized expenses for corporate income tax purposes is no more than 1% of the company's revenue.

To recognize expenses, the fact of their implementation must be confirmed. As the Ministry of Finance of Russia explains, [7] the Tax Code does not establish a specific list of documents that confirm the expenses incurred, thereby not limiting the taxpayer in the matter of confirming the lawfulness of taking the corresponding expenses into account.

Thus, the recognition of expenses for corporate income tax is possible only in cases strictly defined by the Tax Code and within the allowed limits.

2. The STS.

Pursuant to Subparagraph 43 of Paragraph 1 of Article 346.16 of the Tax Code, persons using the simplified tax system with the "income minus expenses" object may take into account free-of-charge transfers of funds or property as part of the expenses reducing the tax base. As in the case of corporate income tax, the list of beneficiaries is limited by law. The incentive is provided only when transferring money and other property to persons called up for military service by mobilization or under contract, including under a contract for stay in a volunteer formation, and to their family members. Furthermore, according to the explanations of the Ministry of Finance of Russia, [8] the application of this norm does not depend on the existence of labor relations between the taxpayer and the specified physical persons.

3. VAT.

Regarding value added tax, the same incentive applies to organizations as to charitable organizations. VAT taxation does not apply to operations for the transfer of goods (the performance of work, the provision of services) transferred free of charge within the framework of charitable activity, with the exception of excisable goods (Subparagraph 12 of Paragraph 3 of Article 149 of the Tax Code). This position is also confirmed by the Ministry of Finance of Russia, [9] which indicates that an organization that does not possess the status of a charitable organization may also receive this incentive.

Starting July 1, 2025, Federal Law No. 227-FZ dated July 23, 2025, [10] introduces new tax incentives: the transfer of goods (performance of work, provision of services) on a free-of-charge basis to organizations of the Armed Forces of the Russian Federation, the National Guard troops, and FSB bodies will not be recognized as an object for VAT taxation if they are transferred for use during the special military operation. The fact of receiving the goods (work, services) is confirmed by an authorized person of the said organization.

Expenses for charity must be documented. For instance, in Case No. A32-440/2015,[11] the tax inspectorate conducted a field tax audit of a Company, resulting in an assessment of VAT and penalties for non-payment of the tax, as well as a fine. In the decision, the control authority indicated that the Company did not include the value of free-of-charge work performed to repair a University laboratory in the VAT tax base. In support of this position, it was stated that no written contract for charitable assistance was concluded between the Company and the University, the taxpayer lacked documents confirming the University's acceptance of the free-of-charge work for accounting, as well as documents indicating the targeted use of the work performed within the framework of charitable activity. Disagreeing with the decision of the tax authority, the Company appealed to the arbitration court.

As established during the court proceedings, a cooperation agreement was concluded between the Company and the University, the subject of which is sponsorship support by the Company for students and the strengthening and development of the University's physical and technical base. Within the framework of this cooperation agreement, repairs to the university laboratory premises were performed. The value of the work under the contract amounted to 600,000 rubles, excluding VAT. The Company, guided by Subparagraph 12 of Paragraph 3 of Article 149 of the Code, did not tax the performed work with VAT, since the work was transferred by the Company on a free-of-charge basis.

The court concluded that the laboratory repair corresponds to the purposes specified in the Law on Charity, which means the Company lawfully excluded the value of the repair work from the VAT tax base. The decision of the tax authority was recognized as illegal.

We note that organizations may waive the VAT incentive. In such a case, it becomes possible to accept the "input" VAT amount for deduction, which in some cases may be more advantageous than the VAT exemption.

4. PIT.

The situation is significantly more favorable if the charitable assistance is provided by a resident physical person.

Pursuant to Subparagraph 1 of Paragraph 1 of Article 219 of the Tax Code, a social tax deduction is provided on the amount of donations made during a calendar year, which allows for a reduction in the income subject to PIT.

The social deduction is provided in the amount of expenses transferred by the taxpayer in the form of donations to:

• charitable organizations;
• socially oriented non-profit organizations for their implementation of activities provided for by the legislation on non-profit organizations;
• non-profit organizations carrying out activities in the fields of science, culture, physical culture and sports (with the exception of professional sports), education, enlightenment, healthcare, protection of human and civil rights and freedoms, social and legal support and protection of citizens, promotion of the protection of citizens from emergency situations, environmental protection, and animal protection;
• religious organizations for their implementation of statutory activities;
• non-profit organizations for the formation or replenishment of an endowment.

The deduction is provided in the amount of the actually incurred expenses, but no more than 25 percent of the income received for the calendar year and subject to taxation. The balance of the unused deduction is not carried forward to the following year.

To receive the deduction at the end of the calendar year in which the expenses were incurred, it is necessary to submit a 3-PIT form declaration and supporting documents to the tax authority. The Tax Code does not establish a specific list of documents confirming the fact of charitable expenses. Generally, these are payment documents confirming the provision of charitable assistance.

We note that the deduction may also be provided if property is transferred. In this case, when determining the amount of the tax deduction, the expenses actually incurred by the taxpayer to purchase the corresponding property are taken into account. If documents on the incurred expenses are absent, the deduction is not provided.

Liability for Violations in the Assessment and Payment of Taxes

Pursuant to Article 122 of the Tax Code, the non-payment or incomplete payment of tax amounts resulting from an understatement of the tax base, other incorrect assessment of the tax, or other unlawful actions (inaction) entails the recovery of a fine in the amount of 20 percent of the unpaid tax amount.

Furthermore, in addition to imposing a fine, the tax authority will assess the unpaid tax amounts and penalties for each day of delay, starting from the day the arrears arose until the day the obligation to pay taxes is fulfilled. From January 1, 2025, to December 31, 2025, the interest rate for penalties for organizations is taken to be equal to:

• during the first 30 calendar days of delay — 1/300 of the Bank of Russia key rate in effect during the specified period;
• from the 31st day of delay in fulfilling the obligation to pay taxes until the 90th day — 1/150 of the key rate;
• from the 91st day — 1/300 of the key rate.

Penalties are paid regardless of the application of liability measures for violations of the legislation on taxes and fees (Article 75 of the Tax Code).

It should be noted that judicial practice regarding holding entities liable for the unlawful application of tax incentives for charity is small. It is mainly related to the dishonest actions of taxpayers attempting to "pass off" an activity as charitable for the purpose of avoiding taxes.

Let us illustrate this with the example of Case No. A12-34780/2017. [12] In the specified case, based on the results of a field tax audit of a Charitable Fund, the tax authority assessed corporate income tax in the amount of 703,660 rubles, VAT in the amount of 12,979,564 rubles, and penalties in the amount of 3,948,211 rubles, and also held the Fund liable for a tax offense in the form of a fine in the amount of 1,566,115 rubles. The decision stated that the taxpayer incorrectly classified income from providing services for organizing and holding contests as disinterestedly received income within the framework of charitable activity. Disagreeing with this decision, the Fund appealed to the arbitration court. During the consideration of the case, it was established that the Fund posted information about the contests being held on the Internet, and the Fund's managers informed various groups about the upcoming contests, inviting them to participate. The Fund drafted contracts with contest participants such that the funds for the provided service (participation in the contest, creating conditions for the performance, and placing and accommodating participants in hotels) were named as targeted transfers for charity.

The court concluded that the Fund was engaged in the paid organization of contests for children using the funds of the participants themselves, which is not a charitable activity. Thus, the Fund did not comply with the main conditions for recognizing an activity as charitable: disinterestedness for the recipient of aid, since in the case at hand, the same persons simultaneously acted as benefactors and beneficiaries. Consequently, the Fund was not entitled to the tax exemption. The claims were denied.

In conclusion, the state provides certain concessions and incentives in taxation to persons engaged in charitable activity.

However, to avoid possible abuses, primarily the intentional understatement of the tax base, the circle of aid recipients, the grounds for provision, and the limits on charitable assistance expenses are significantly restricted.

In our view, to stimulate charitable activity and involve a wider circle of benefactors, the number of tax incentives should continue to be expanded.

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References

[1] Website: https://www.economy.gov.ru/material/news/za_5_let_biznes_pozhertvoval_v_adres_sonko_2735_mlrd_rubley.html.

[2] Letter of the Ministry of Finance of Russia No. 03-03-06/3/29659 dated April 4, 2023.

[3] Ruling of the Arbitration Court of the Ural District No. F09-1246/22 in Case No. A60-28720/2021 dated April 8, 2022.

[4] Determination of the Supreme Court of the Russian Federation No. 305-ES21-1805 dated September 28, 2023.

[5] Letter of the Ministry of Finance of Russia No. 03-03-06/1/95569 dated October 4, 2022, On the Recognition of Expenses in the Form of Charitable Assistance to Citizens Called up Within the Framework of Partial Mobilization for Corporate Income Tax Purposes.

[6] Letter of the Ministry of Finance of Russia No. 03-03-07/53539 dated June 10, 2024.

[7] Letter of the Ministry of Finance of Russia No. 03-03-06/2/82006 dated September 18, 2020.

[8] Letter of the Ministry of Finance of Russia No. 03-03-06/1/43796 dated May 15, 2023.

[9] Letter of the Ministry of Finance of Russia No. 03-04-11/72 dated April 24, 2006.

[10] Federal Law No. 227-FZ dated July 23, 2025, On Amending Part Two of the Tax Code of the Russian Federation.

[11] Ruling of the Arbitration Court of the North Caucasus District No. F08-626/2016 in Case No. A32-440/2015 dated February 25, 2016.

[12] Ruling of the Arbitration Court of the Volga District No. F06-39485/2018 in Case No. A12-34780/2017 dated November 28, 2018.